Capitalizing Central Banks: A Net Worth Approach

Author/Editor:

Alain Ize

Publication Date:

January 1, 2005

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper provides a simple, quantitative, net worth-based, approach to assessing the need for central bank capital. It derives a concept of "core capital" (a function of the central bank's operating expenditures and the carrying cost of its international reserves) as the minimum capital needed by a central bank to ensure the credibility of its inflation target. The approach is illustrated with the published accounts of three loss-making central banks and selected accounting entries for a broader sample of central banks. Policy implications are explored. In particular, the paper argues that central bank capitalizations cannot be automatic and require instead a broad policy debate.

Series:

Working Paper No. 2005/015

Subject:

Banking Currencies Expenditure International reserves Personal income

English

Publication Date:

January 1, 2005

ISBN/ISSN:

9781451860344/1018-5941

Stock No:

WPIEA2005015

Pages:

25

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